International Study: Privatization of Long-Term Care Facilities Does Not Lead to Greater Transparency or More Care

March 23, 2016

A comparison of the long-term care industry in California, Ontario (Canada), England, and Norway evaluates the extent to which ownership of nursing facilities has shifted from the public sector to private for-profit and not-for-profit companies, and how this shift affects the transparency of information and accountability for public reimbursement.[1] While privatization has been a recent trend in Canada and Europe, it has been a more longstanding pattern in the United States. Prior studies in the United States show that for-profit facilities have lower staffing levels and provide poorer quality of care to their residents. The international study found that increases in the percentage of private companies correlated with lower spending on nursing and direct care services. While less was spent on direct care services in private facilities, profit margins in private facilities were much higher than in their public counterparts.

The researchers sought to understand (1) the context and extent of privatization across the four locations, (2) government payment trends, and (3) financial and accountability systems by location. Their hypothesis – that greater privatization would be associated with greater financial transparency and accountability requirements – was disproven. They found, “Contrary to the study hypothesis, none of the countries had strong financial accountability for public dollars on administration and profits.” Of the four locations, only California had any focus on financial accountability, as reflected in the (as yet not fully-implemented) Nursing Home Transparency and Improvement Act (enacted as part of the Affordable Care Act). The researchers found that accountability in the United States is limited. “[Medicare] cost reports are often inaccurate or incomplete because they are not audited and penalties are not issued for reporting problems.”

The researchers recommend the development of new “mechanisms for reporting how public resources are spent and adopting appropriate cost controls and administration and profits to assure value for expenditures.” They also recommend “A new international policy focus . . . on greater financial transparency and accountability for nursing homes to protect public resources and to potentially improve care.”

Although the analysis focuses on privatization, transparency, and accountability, a striking aspect of the study is its description of the nursing home industry in each of the four locations. The contrast between California (2012) (with 99% of facilities privately-owned, including 69% on a for-profit basis and 51% owned by chains) and Norway (2013) (with 90% facilities municipally-owned) is stark.

In California, 35% of nursing home expenditures are devoted to direct care, in Norway, 60%.

California nursing facilities spend, on average, 15.5% of their revenues on administrative costs, in Norway, 3.3%.

Profit margins in 2011 were 6.5% in California, with chains enjoying profit levels that were double other facilities, and total profit margins increasing 42% over the study period, 2007-2012; in Norway, municipal facilities (90% of the facilities) do not have profits.

Norway fully funds long-term care as part of its universal health care system, with residents paying a fee to the municipality based on their income. Nursing facilities are required to have a medical doctor and registered nurse on site around the clock. 97% of nursing home beds are in single rooms with private bathrooms. Occupancy rates are 98% in Norway, compared to 85.5% in California.

Conclusion

Privatization of long-term care is correlated with reduced reimbursement for care and increased reimbursement for administrative overhead and profits. Policymakers need to heed the researchers’ recommendations to strengthen rules for transparency and accountability.